- Euro comes under pressure versus the US Dollar on Wednesday despite an upwards revision to Euro area inflation data.
- USD is supported by strong US banking results, persistent inflation and hawkish Fed commentary.
- Upside for Euro dependent on April inflation data and ECB Bank Lending Survey.
The Euro (EUR) trades in the 1.0920s against the US Dollar (USD), down a third of a percentage point on the day, during the European session on Wednesday. EUR/USD has pulled back over recent days after briefly making year-to-date highs of 1.1075 on April 14. The correction comes on the back of a strengthening US Dollar as bets crystalize that the Federal Reserve (Fed) will continue raising interest rates.
From a technical perspective the pair is broadly in a medium-term uptrend which is biased to extend.
EUR/USD market movers
- EUR quickly pares back small gains made after Core Harmonized Index of Consumer Prices (HICP) is revised up to 1.3% from 1.2% in the final estimate for March.
- USD gains a boost from St. Louis Fed President James Bullard’s comments that the Fed should continue raising rates due to persistent inflation and overblown recession fears.
- Unexpectedly strong first quarter earnings from the likes of JP Morgan and Bank of America indicate resilience in the crisis-hit US banking sector, further supporting the Greenback.
- Data showing a sharp rise in inflation expectations in Friday’s Michigan Consumer Confidence Survey resuscitate the inflation narrative.
- Recent US employment data continues to show a strong labor market further putting pay to recession fears.
- Euro remains supported by expectations that the ECB will continue with interest rate hikes, though their size will be data-dependent.
- European Central Bank’s chief economist Philip Lane has said the health of the region’s banks, as reported in the ECB Bank Lending Survey (BLS), will be a key determinant of whether the ECB hikes aggressively or not.
- April HICP inflation is key to outlook on rates.
- From the US, the main data release is the Fed’s Beige Book out at 18:00 GMT.
EUR/USD technical analysis: Uptrend intact and likely to extend
EUR/USD is in a medium-term uptrend since recovering from the September 2022 lows and the established trend is expected to continue. After a pullback in February 2023, EUR/USD recouped its losses during March and made new year-to-date highs above 1.10 on April 13.
During this week the pair has pulled back down into the mid 1.09s, however, where it currently trades at the time of writing. Given the strength of the overall uptrend, however, it is expected to recover and continue extending higher.
A break and daily close above the 1.1075 year-to-date highs of April 14 would provide bulls with fresh confidence to push higher and the pair could rise up to the next target at around 1.1190 where the 200-week Simple Moving Average (SMA) is situated and likely to provide pushback.
A break and close below the lower high at 1.0830, on the other hand, would bring into the question the strength and validity of the uptrend and could see losses extend down to a confluence of support at 1.0750.